The FTSE 100 and FTSE 250 boast some brilliant growth stocks. Better still, many are cheap, having been beaten down by recent economic uncertainty.
While the high-flying FTSE 100 now trades on a price-to-earnings (P/E) ratio of around 19.5, it’s still possible to find amazing pockets of value, with P/Es on individual stocks as low as 7 or 8.
I like targeting growth stocks that have been through a troubled period. It’s my opportunity to pick them up at a reduced price and benefit when they recover. However, just because a stock looks cheap doesn’t mean it’s good value. Turning a company around takes time. Patience is required.
I’ve learned that the hard way with one of the cheapest stocks on the FTSE 100, JD Sports Fashion. I bought the shares following a poor Christmas 2023 trading season, but sales underwhelmed in Christmas 2024 too.
I’ve repeatedly averaged down on the self-styled ‘King of Trainers’, tempted by its super-low P/E of 6.9, but until consumers start spending more freely, I’ll have to grit my teeth and hold on.
Budget carrier easyJet, which I don’t own, is another dirt-cheap underperformer. Its shares are flat over the last year and down 25% over five, giving a P/E of 7.37. Again, it needs consumers to start spending. JD Sports and easyJet are worth considering, but only for investors willing to hold on for brighter skies.
Last year, I snapped up distributing and outsourcing group Bunzl (LSE: BNZL), a stock I’d admired for years. It has a brilliant track record of consistently increasing dividends that stretches back more than 30 years, and grown rapidly through acquisitions. Then in April it suffered its worst sell-off in a decade after issuing a profit warning, amid challenging conditions in North America. I decided that gave me a rare chance to snap up the stock at a reduced price, then sit back and wait for it to recover. I spend my investment life waiting for moments like these.
The Bunzl share price has now plunged 38% over the last year, a big drop for what I’ve always considered an old reliable. I’ve snapped up its shares on three separate occasions and can’t rule out going back a fourth time.
On 17 December, Bunzl forecast full-year revenues should grow 2%-3% at constant exchange rates, but remain flat at actual rates. Operating margins are being squeezed by rising costs, but the P/E of 10.55 still looks temptingly low to me, while the trailing yield has climbed to 3.6%. Again, Bunzl needs the global economy to fire up. But I think it’s still worth considering for investors happy to bide their time.